NEW COVID VARIANTS TO DETERMINE PACE OF ECONOMIC RECOVERY

According to the Africa Year-ahead Outlook from Rand Merchant Bank’s (RMB) Markets Research team, vaccine efficacy and new COVID-19 variants are likely to be strong factors in Botswana’s continued economic recovery.

After a severe contraction of 8.7% in 2020, growth was expected to rebound to 9.1% in 2021 as a result of a resurgence in the global demand for diamonds, which was projected to recover to normalised levels in 2021. Domestic growth will be supported by the continued global recovery, which will support commodity prices and result in sustained pre-pandemic domestic mining activity.

Says Gomolemo Basele, Quantitative Analyst at FNB Botswana: “Growth is expected to moderate to 4.0% in 2022, still supported by the mining sector with two copper projects being central to the country’s prospects.” The Khoemacau copper mine commenced production in 2021 and is expected to gradually increase output to reach about 60,000 tones of copper metal. A second copper mine is expected to come on-stream over the medium term to support Botswana’s emerging copper production capacity.

According to Basele, non-mining sector performance is expected to benefit from increased developmental spend over the forecast horizon: “The improvement in government revenue over last year will allow for the delivery of key infrastructure projects, which will improve the local operating environment.”

Furthermore, as part of the diversification agenda, several measures have been planned to support the development of the agricultural sector from 2022 onwards. A revised programme to replace the Integrated Support Programme for Arable Agriculture, aimed at increasing productivity and improving food security, is expected to be implemented in the first half of 2022. In support of this programme, import restrictions (that came into effect in 2020) on certain vegetables are also likely to be extended to allow local producers to improve their capacity. As part of their efforts to improve domestic food security, the government is also in the process of building silos to increase local grain storage capacity.

Additionally, the country’s Economic Recovery and Transformation Plan (ERTP) is expected to gain pace, given the improved fiscal outlook because of higher mineral revenue over the medium term. Says Basele: “Botswana has also secured funding from both the World Bank and African Development Bank to the tune of US$250m and US$137m respectively, to aid in the delivery of the ERTP. These funds will be directed towards attracting private sector investments, contributing to the diversification of Botswana’s exports, and creating job opportunities towards a green economy.”

On inflation, prices pressures are expected to persist. “Heading into 2022, price growth will receive further upside pressure from the transport group index – fuel prices were increased again in December 2021 and public transportation fares of 1 January 2022. These factors coupled with our anticipation of higher utilities and rental prices this year will work to keep inflation elevated above 7-year historical averages. In spite of this pressure, we expect inflation to revert to the central bank’s 3.0%-6.0% objective range in the third quarter of 2022, as the effect of last year’s supply-side pressures recedes,” concludes Basele.